April 26, 2006

Legislative Activity

April 26, 2006

To: The Honorable Deborah Ortiz and Members, Senate Health Committee

From: American Advertising Federation
           California Chamber of Commerce
           California Nevada Soft Drink Association
           California Restaurant Association
           California Retailers Association
           Grocery Manufacturers Association

Re: Opposition to SB 1118 (Figueroa) – Selective Taxes on Certain Food, Beverages and Advertising to Fund Health Care

This coalition of organizations strongly OPPOSES SB 1118 (FIGUEROA)which would impose: an additional tax on all food products sold at certain restaurants in California; a tax on carbonated beverages sold at any retailer in California; and a selective tax on all food advertisements for certain food and beverage products for the purpose of funding health care. The coalition supports the author's concern for rising obesity rates and the cost of health care. However, if the intention of SB 1118is to effectively address the complex issue of obesity in California, legislation mandating a food, beverage and advertising tax clearly misses the target. This bill inappropriately attempts to shift accountability for an individual's life and food choices from the individual with sole control over these decisions, to certain restaurants and food and beverage manufacturers. This bill does not address the true cause of obesity problems and does not offer a reasonable remedy.

Food and Beverage Tax

SB 1118mistakenly assumes that certain segments of the restaurant industry, namely quick serve establishments, are responsible for obesity and deserve an additional tax imposed on ALLfood products available for sale at these restaurants, regardless of their nutritional content. Further, while taxation on certain food and beverage products and certain food and beverage advertisements is a misguided approach to address this issue in the first place, the bill is written to impose a tax on items such as salad, fruit, baked potatoes, chicken, milk, diet soft drinks and orange juice.

A tax on certain food and beverages is also regressive, impacting low income consumers the most since it takes a bigger bite out of their income. Low-income households spend more then 20 percent of their income on food compared to 6.5 percent in an average-income household. Even though this is an excise tax imposed on retailers, ultimately the consumer will bear the cost through higher prices. Currently, prepared food is already subject to sales tax. Soft drinks are also subject to sales tax and, when sold in containers, subject to the California Redemption Value of either four or eight cents per container.

SB 1118's additional excise tax on all carbonated beverages uses an arbitrary standard for imposing blame for the obesity problem. The bill would tax diet soft drinks and fruit drinks that use any non-caloric sweetener. Additionally, SB 1118singles out a narrow segment of the restaurant industry, namely quick serve establishments. Quick serve establishments serve less than 10 percent of all meals purchased in the state, yet they are targeted as the culprit for childhood obesity. In fact, 76 percent of all meals are eaten at home. When Californians do dine out, they choose from a myriad of options and have the opportunity to customize their meals to meet their individual diets.

California cannot tax its way out of addressing the true causes of obesity. In addition to overall dietary choices and level of exercise, family history, genetic susceptibility and other medical conditions determine why some people are prone to becoming overweight and even obese. Overlooked is the fact that children are becoming less and less active. According to a study by researchers at the Johns Hopkins University School of Medicine and experts at the Centers for Disease Control and the National Institutes of Health, the average child spends 15,000 to 18,000 hours watching television by age 17. In 1969, 80 percent of children were involved in daily physical education programs; only 20 percent are today.

Selective Food & Beverage Advertising Tax

The coalition also opposes the punitive and selective tax on certain food and beverage advertising. Again, the causes of obesity are complex, and no one product line should be punished with selective taxes.

SB 1118 violates Constitutional free speech guarantees by singling out certain food advertising for taxation based solely on the content of the speech.The U.S. Supreme Court has repeatedly held that truthful advertising for legal products is protected speech under the First Amendment. The government may only enact speech restrictions that are narrowly tailored and will directly advance a substantial governmental interest. There is no research that shows food advertising to be a cause of obesity. Taxing the advertising will do nothing to reduce obesity rates.

A tax such as the one proposed in SB 1118would be impossible to administer and fairly regulate. For example, would an advertisement for a product that does not meet the definition of "food of poor nutritional quality" be subject to the tax if certain products that do meet the definition also appear in the advertisement? Would product placement in television programs be subject to the tax if it were a network program based in New York? Or would an advertisement for a product that makes clear that it is a treat to only be eaten in moderation as part of a healthy diet be subject to the tax? The complexities of implementing such a tax would create more bureaucracy than it would be worth.

Enacting such a punitive tax would further worsen the California business climate. California businesses will end up shouldering the entire burden of the tax because the U.S. Constitution prohibits taxing out-of-state transactions. Since Florida passed and repealed an advertising and services tax in 1987, well over half the states have considered, and rejected, a broad tax on advertising. To narrow the scope of the advertising tax would make it even more complex with even fewer benefits.

It is important to recognize that personal responsibility, moderation and physical activity are all key ingredients to a healthy lifestyle. Most consumers and the general public agree that it is wrong to hold restaurants and the food industry liable for the negative effects of personal food choices and sedentary lifestyles.

Therefore, for the reasons above, this coalition must respectfully OPPOSE SB 1118.

Cc: The Honorable Liz Figueroa
       Lark Park, Senate Health Committee
       Joe Parra, Senate Republican Caucus